Financial statement preparation

Financial statement preparation

Continuously adjusting the services we provide our clients to respond to the increasing scrutinization hedge funds and their managers face.

Continuously adjusting the services we provide our clients.

Hedge funds and their investment manager’s are becoming increasingly scrutinized by regulators and exchanges such as the SEC and FSA. This will ultimately have a significant impact on the services that auditors of hedge funds can provide to their clients.

Historically, auditors have provided assistance to their clients in the preparation of the hedge fund’s year-end financial statements. However if the investment manager has registered with the SEC the preparation of the fund’s financial statements by the auditor is a specifically prohibited, “non-audit service”.
 
The rationale for this is two-fold:
  1. The financial statements are ultimately the responsibility of the fund’s management and/or directors. Therefore, preparing financial statements on behalf of a hedge fund client or even recommending accounting policies and disclosures could be viewed as undertaking a management function, thereby creating a threat to the auditor’s independence. 
  2. When auditors help prepare the financial statements for their hedge fund clients, this may create a “self-review” threat as there could be a perception that auditors would be less rigorous in their reviews than they would be had they not been involved in their preparation. 

It is ultimately the responsibility of the fund’s management to prepare the fund’s financial statements and they may perform this service themselves or ask another service provider to assist them. Unfortunately, investment managers and administrators may not have the resources available to prepare a fully GAAP-compliant set of financial statements and note disclosures. Accounting and financial reporting standards are constantly changing.

Investment managers and administrators are most concerned with the daily operation of their funds. As a result, it may be difficult for them to stay up-to-date on financial reporting standards in addition to servicing their clients. Given the sensitivity today surrounding proper financial reporting, it is critically important that whomever undertakes this exercise has sufficient knowledge of financial reporting standards to advise management on the fund’s accounting and disclosure requirements. 

Use of an external advisor like KPMG to assist with the preparation of the financial statements and to advise on financial reporting issues is good practice to provide high quality GAAP compliant financial statements. 

 

Why KPMG?

KPMG in the Cayman Islands have served the hedge fund industry for over forty years. We have extensive technical expertise in financial reporting for hedge funds under US GAAP and IFRS and can draw upon our global network of hedge fund knowledge if required. Our team of professionals are continually undergoing training to stay on the leading edge of financial reporting issues for hedge funds. Moreover our staff are all former audit professionals, which gives us insight into audit issues that may arise and more fluid interaction with your auditors. KPMG are not precluded from providing financial statement compilation services, so long as the entity is not also an audit client of our practice. The processes and procedures for compilation services are well developed and are guided by standards issued by the American Institute of Certified Public Accountants.

 

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